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Relying on Rocket Power

Today we participated in a teleconference with Pimco which was presented by head of European portfolio management, Andrew Balls. The call covered Pimco’s cyclical outlook including an update on their global economic outlook and financial market trends. Pimco is well known as a global fixed income management company headed up by Bill Gross. They have managed money since 1971, over this time producing superior returns and growing their assets under management to over $840bn as at 30 June 2009.

Pimco have been strong exponents of a ‘new normal’ paradigm that we’ll experience in the next 10 years, this outlook is diametrically opposed to what for the past 15 years has been considered ‘normal’ . In this state we’ll see higher inflation – although this factor still has some time before it will become apparent – increased regulation of markets and economies, de-leveraging, and hence more saving and less consumption. All these factors will contribute to lower economic growth going forward, and it is around this framework that Pimco bas their investment decisions.

Within this longer term framework they take a look at shorter term outlook to make more tactical decisions. On a one year view they see that the global economy is going to come out of the deep recession (indeed many countries have already come out of recession) but the recovery isn’t going to be as strong as the consensus view that we’re going to experience a V shaped recovery.

In the latter half of 2007 and into 2008 as private sector demand began to drop off, first slowly and then more rapidly, and companies de-stocked we saw that rockets 2 and 3 were in reverse, and this is what plunged the world into a recession. The tail end of 2008 and into 2009 has seen co-ordinated government stimulus (both fiscal and monetary) which coupled with a re-stocking around the world has helped economies come out of recession.

Rocket 3 is still not assisting which is what needs to happen to ensure that the strong recovery becomes sustainable. The private sector has been scarred and areas that in the past have been leading indicators in improved private sector spend, namely vehicle and housing demand, have been largely conspicuous in their absence, and Pimco expects this trend to continue.

Re-stocking is a once off rocket. Government spending can only happen as long as they are able to borrow. The world requires an improved appetite from the private sector in order to return to ‘old normal’ levels of growth on a sustainable basis.

In summary Pimco believe that swift government action has prevented a global recession, but that growth going forward will be more muted. This more muted growth means that return expectations need to be lowered.

The JSE opened slightly firmer today, supported by stronger commodity-related stocks. As commodity prices continue to rise, resource equities catch the upside movements. With the rand stronger and mixed Asian markets, gains were slightly capped but the expectation is that the forward impetus should continue. By midday, the All Share was 1.38% up.

The rand made up some ground this morning but seems range-bound until the heavily anticipated MTN-Bharti announcement due out later today. At noon, the dollar cost R7.38.
The gold price firmed during the early session this morning. This comes on the back of a weaker dollar and technical momentum from rising gold futures. The precious metal is set to post its best quarterly performance since the first quarter of 2008, marking an 8% gain. At midday, a troy ounce traded for $1000.47.

International Markets

Stocks in the US fell on Tuesday as the Consumer Confidence Index for September slid down. This dreary outcome overshadowed signs that the housing sector is stabilizing and solid earnings from Walgreen Co. With the third quarter drawing to a close, trading was volatile whilst volumes remained light. The market was mixed on the mixed economic data but following the gains in the previous session, some profit-taking was expected. By close, the Dow Jones was 0.48% lower whilst the Nasdaq had given up 0.31%.

Japan’s stock index climbed slightly higher overnight in a session of marked with caution. Investors were hesitant to take firm positions ahead of a series of economic data releases and at the end of Japan’s fiscal half-year. It gained over 1.8% in the July-September quarter after surging nearly 23% in April-June. By close this morning, the Nikkei had gained 0.33%.

Shares in Hong Kong finished lower after investors booked profits on blue chips ahead of a national holiday. Following Tuesday’s voluminous gain, traders were reluctant to trade ahead the national holiday. This morning, the Hang Seng closed 0.28% lower.

Shares in London made progress during the morning session. Miners led the way on higher commodity prices. These gains outweighed falls in banks and defensive stocks. The market is ticking higher on the last day of a generally pleasing quarter but investors are cautious ahead of a historically volatile October. By midday, the FTSE 100 was 0.49% higher.

Share Price News

Clicks group Ltd of the Food and Drug Retailers sector was among the morning’s most voluminous gainers. It gained 4.84% to sell for R22.96 per share at midday. Also performing well for the second session in a row was Fonework Holdings Ltd of the Telecommunication Services sector. It improved by 4.55% to trade for R1.15 per share at noon.

Among many of the losing resources was Mvelaphanda Resources Ltd of the Metals and Minerals sector. At midday, a share traded for R37.70 (a 5.75% loss). Of the Gold Mining sector, Jack and Simmers Mines Ltd also lost ground. At midday, it had shed 2.72% to sell for R1.79 per share.

Retirement Fund Survey cont

Continuing with our look at Sanlam’s retirement fund survey, we look at some of the points that come from the member’s survey. Sanlam conducted 600 telephonic interviews with members of various funds.

29,8% of the replies indicated that they don’t know the life company funds in which their retirement funds are invested.

While 96,8% of those interviewed consider it very important to save for the future, 58% consult with a financial advisor. It is understandable that not everyone can or needs to consult with an independent advisor, but this percentage is likely to increase over time.

Upon resignation from a retirement fund, it is typically advantageous to preserve the accumulated benefits into preservation fund. However less than 45% indicated that they understand what a preservation fund is.

Preservation funds are held independently from the company fund, so that just prior to termination of services with a company, a member will look for options of where their cumulative fund balance can be transferred to. While no additional contributions can be added to the preservation fund, the member will have the election upon reaching normal retirement age to retire from the fund. The current tax free incentives for retirement funds continue with the preservation funds.

The question was asked what retirees would do if they had less money at retirement than they would like to have?

The question was answered as follows:

A more recent development in the retirement fund industry has been the offering of lifestage models as investment choice. We will look at the specifics of this in a future article.

As always for those who need to visit the planning for their retirement, please don’t hesitate to visit www.seedinvestments.co.za

Equity markets recoup losses, tracking gains on Wall St

Local Markets

The JSE opened slightly higher this morning, tracking a strong overnight performance on Wall St. Markets in Asia also firmed, which saw the way clear for mining stocks to surge ahead. The merger and acquisition activity, both locally and globally, is creating a bullish environment as business outlooks improve and incentive looms for investors. The MTN-Bharti deal is particularly topical for the market as the discussion deadline draws closer. By midday, the All Share had lost 0.42% as traders’ book profits and wait for direction from the US.

The rand was slightly stronger this morning, with many analysts predicting further prods at the lower end. Focus remains on the MTN-Bharti saga and without formal agreement, the rand could move even higher. By midday, the dollar cost R7.40

Commodities were mostly flat this morning as equity markets rallied yesterday and corporate activity is the main focus. Gold was hovering around the $990 level for most of the morning, being directed by currency markets. At noon, a troy ounce traded for $991.79.

International Markets

Equities in the US rallied on Monday, snapping a 3-day losing streak. The move was spurred by a number of corporate takeovers in the technology and health-care sectors. Usually a feature of bullish markets, the merger and acquisition (M & A) activity fuelled optimism over rising share values as business outlooks are improving. Xerox Corp agreed to buy Affiliated Computer Services Inc and Abbot Laboratories is purchasing Solvay’s drug unit. The increased investment activity saw the Dow Jones move 1.28% upward whilst the Nasdaq gained 1.90%.

The benchmark Nikkei average climbed higher overnight as exporters such as Kyocera Corp benefited from the yen’s retreat from the dollar. After reaching an 8-month high, the yen finally gave some back and traders were quick to move in on comparatively cheaper exporters’ stocks. The index’s gain comes on the back of its lowest close on Monday since July 24. By close this morning, the Nikkei had gained 0.91%.

Shares in Hong Kong bounced back overnight from a 3-week low. Investors were quick to recover volumes of oversold shares of banks and telecoms following a rally in Wall St’s overnight session. The bullish sentiment fuelled the biggest 1-day gain in 2 weeks. By close this morning, the Hang Seng had improved by 2.06%.

Britain’s top stock index retreated slightly during the early session this morning as weakness in the energy sector outweighed strength in financials. Traders were relatively cautious on open after a sharp rally the previous session. Focus remains set on Wall St movements to give direction. With sharp gains yesterday, the market is susceptible to sell-offs and the demand outlook for commodities and energy-related stocks seems depressed. By midday, the FTSE 100 had given up 0.30%.

Share Price News

Fonework Holdings Ltd of the Telecommunications Equipment sector was among the morning’s most voluminous gainers. It gained 10.00% to sell for R1.10 per share at midday. Also performing well was Sentula Mining Ltd of the Metals and Minerals sector. It improved by 5.47% to trade for R2.70 per share at noon.

Among some of the losing stocks was the ever-volatile Metorex Ltd of the Metals and Minerals sector. At midday, a share traded for R3.30 (a 2.94% loss). Of the AltX sector, Alliance Mining Corporation Ltd also lost ground. At midday, it had shed 5.46% to sell for R2.25 per share. Many of these losses are attributable to profit-taking following the advance on the bourse.

Retirement Fund Survey

The retirement industry in South Africa is exceptionally large at an estimated R3 trillion in assets. Sanlam Employee Benefits, as a large participant in this industry, produce an annual survey of retirement funds and members, known as the Benchmark Survey.

It is a comprehensive survey interviewing 200 principal officers of sand alone retirement funds, 100 interviews with the participating employees of umbrella funds and 600 interviews with retirement fund members.

The report covers various detailed questions on these and other issues pertaining to retirement funds:

For most members of a retirement fund, be it a defined contribution or a defined benefit fund, they will not save sufficient capital to replace their final salary in full. The ratio of starting pension or annuity that a lump sum can buy as a percentage of final salary is known as the replacement ratio.

The difference between expectations of this pension and what is actually achieved remains high. The report indicated that 75% of people surveyed are targeting a replacement ratio of between 80 and 100%. They note that this is in stark contrast to the observed replacement ratio of 30%.

At the same time many South Africans do not feel that they are ready for retirement, with some 30% indicating that they would delay retirement while 54% plan to work for a wage or salary in their retirement. At the same time the report indicated that the observed average retirement age has dropped slightly from 63,2 years to 62,87 years in 2009.

What was interesting, but not necessarily surprising, was the percentage of questions, especially on the investment section, that were answered “don’t know”.

Unfortunately for a multitude of reasons, investors generally have poor visibility and understanding of, in the case of defined contribution funds, their own assets. Their assumptions regarding future contributions, returns, inflation and ability to retire is also typically not based on a concrete model. The hope that the retirement fund will be largely sufficient, can lead to inadequate planning on discretionary funds.

All investors with 10 years and less to retirement should start to update their projections and plan accordingly. If you find yourself in this position, visit www.seedinvestments.co.za to determine if we can assist you, or contact us as per details below.

Value Investing

Following up on a study in the outperformance of value stocks called Contrarian Investment, Extrapolation and Risk, US value biased fund manager, Brandes recently produced a report titled Value vs. Glamour revisited.

The study first looked to dissect a portfolio of shares between those with high price to book ratios and those with low price to book ratios. The price to book is a measure which broadly provides an indication of value.

With a universe of US shares, after eliminating the smallest 50%, they divided this into 10 deciles, with decile 1 having the highest price to book ratios and decile 10 the lowest price to book ratios. The result is 2 portfolios – decile 1 the glamour portfolio and decile 10 the deep value portfolio.

Next they looked at the relationship between the valuations differential and the subsequent 5 year returns. This differential was taken by dividing the price to book for decile 1 by price to book for decile 10.

The study started in April 1968 and the subsequent 5 year performance for each portfolio was monitored.

This process was then repeated starting year a year later. Again the value differential between the two portfolios monitored and the subsequent 5 year outperformance monitored.

Observations

• The medium differential in price to book was 11,1 times.
• In February 2009 this ratio was over 20 times. i.e. the most expensive shares compared to the least expensive shares as determined using price to book was at a factor of 20 times.
• In April 2009 value shares at a median price to book ratio of 0,5 while glamour shares had a price to book ratio of 7,69. Dividing the 1 by the other gives a ratio of 15,38 times.
• In February 2000, when glamour shares were exceptionally expensive, this ratio reached a peak of 81,1 indicating that glamour shares were more than 80 times more expensive than value shares.
• From that point, value shares outperformed glamour shares by a massive 50,6% annualised over the next 5 years.

Source : Brandes Institute

Conclusions

• Most of the time over a 5 year period value shares – as defined with low price to book ratios – outperform glamour shares.

• At points where there is a greater disparity in valuation between value and glamour shares, there is a high probability that the subsequent 5 year outperformance of value shares increases.

The rerating in shares in 2009 saw growth shares re-rate up as investors became less risk averse. The same is not necessarily true of value shares. Over time, but especially in times when glamour or growth is expensive, investors want to be positioned in value.

Little action on the JSE after public holiday

Local markets

At midday, the JSE All Share had fallen 1.11% as the local bourse took a lead from lower international markets after the public holiday yesterday. Heading up the downward slide was the basic materials sector, which had lost 2.23% by 12:00.

The rand was trading at R7.46 to the US dollar, continuing to strengthen slightly after the gold price inched up and US stock futures appeared optimistic.

Gold was selling at $998 an ounce at noon on Friday, recovering 0.62% after sliding to its lowest levels in a fortnight this week. The precious metal’s hedge appeal was tarnished by a strengthening dollar.

International markets

On US markets, the Dow Jones closed 0.42% lower yesterday while the Nasdaq lost 1.12%. Investors were anxious about weak signals from the housing market, as well as the possibly too-early retraction of stimulus efforts.

In Japan, the Nikkei tumbled 2.64% this morning as the financial sector took a hit after Nomura Holdings announced a $5.6 billion share issue. Investors were concerned that other financial stocks planned to do the same.

The Hang Seng dropped 0.12% to reach its lowest level in over a week, dented by weaker banking and telecommunications stocks.

In the building and construction materials sector, Afrimat Limited gained 10.17% at midday to sell at R3.25 a share after four deals. Gold miner Central Rand Gold Limited rose 9.09% to trade at R2.40 a share at noon after three deals.

Other gold mining companies were not so lucky. Village Main Reef Limited fell 8.33% after one deal took the share price down to R1.10. Great Basin Gold Limited was selling at R10.19, as shares fell 7.87% after six deals this morning.

Inflation Slightly Down – Interest Rate on Hold

Tito Mboweni’s last meeting in charge of the SARB was held on Monday and Tuesday, with the committee ultimately deciding to keep the repo rate on hold. Central / Reserve Bank Governors around the world are keeping a sharp eye on each bit of economic data that comes out, not only in their own country, but also in other influential countries. While much of the world is just coming out of recession the ‘all clear’ flag has not yet been waved and Governors around the world need to know when the ‘all clear’ will be given – if it comes at all – or if a ‘new normal all clear’ will eventually prevail.

Just a recap of some of the more important facts to come from Stats SA on the August CPI figure:
• Inflation down to 6.4% pa from 6.7% for the year ended 31 July 2009. CPI is still out of the target 3 – 6% range (it’s now been 30 months since we were last in the target range). The level of inflation was in line with expectations.
• Transport is still deflationary over the past 12 months – transport index down 2.7% over this period – but the rate of deflation is falling. This indicator is largely influenced by petrol prices, and so will have upward pressure when September’s CPI is released, but should offer some relief the following month (expectations of a fuel price fall in October).
• Inflation in Limpopo is the only province where inflation is in the target range (5.7%), while Mpumalanga is the province with the highest inflation rate (7.4%).
• Food and non-alcoholic beverage inflation is starting to come under control. It was up only 0.1% for the month and 6.8% over 12 months. Downside on this figure was provided by oils and fats (-1.2%), bread and cereals (-0.5%), and meat (-0.5%). Remember these items have come from a high base, so being deflationary doesn’t necessarily mean they’ve become cheap.
• The price of alcoholic beverages and tobacco increased by 2.5% in August, and by 12.6% over 12 months.

The statement from the MPC highlighted the following key facts:
• CPI to enter target band on a sustained basis in the second quarter of 2010.
• Rand strength has helped to keep inflation down, but remains a key risk should it weaken sharply.
• Inflation expectations have fallen, but remain above the upper end of the target range.
• Administered price increases (electricity, etc) and growth in real unit labour costs (i.e. wage increases above inflation that aren’t based on increased productivity) are the main upside risks.
• The local economy remains weak and in recession.

Overall it looks like we are heading in the right direction, but only improving ever so slightly. In light of this ‘light at the end of the tunnel’ it is probably pragmatic to keep the repo rate at 7%. We are at all time lows, and the Governor is conscious of not dropping rates too low. At the same time, we are not in the position to even be contemplating a rate hike. We will most likely see rates staying at this level for some time to come unless there is a severe shock to the system.

Equity markets fairly flat; focus on US Fed’s interest rate decision

Local Markets

The JSE opened fairly flat this morning as Asian markets reflected mixed performances and the rand’s strength limited gains on the bourse. The market looks bound to a narrow range today with little data emerging to give direction. The rand’s strength after the interest rate was left unchanged yesterday is still restraining resources and other stocks from extended gains. The market looks set to stabilise around the 25000 – 26000 level. At noon, the All Share had fallen 0.17%.

The rand was relatively unmoved from overnight levels on open this morning. Traders are merely tracking the dollar ahead of tomorrow’s public holiday. The local currency received support from the SARB’s decision to leave interest rates unchanged. Impetus was also maintained via the resurgence in the gold price, positive US equities and improvements in the impending MTN-Bharti deal. At noon, a dollar cost R7.35.

The gold price regained some ground over recent sessions. As physical demand in Singapore and other importing countries increases, the metal’s appeal as a safe-haven asset is re-affirmed. By midday, a troy ounce traded for $1013.53.

International Markets

Stocks in the US gained for the second day in a row on Tuesday. The consensus among traders was generally that the US Federal Reserve will continue its accommodative policy in order to bolster economic recovery. The Fed began its 2-day meeting yesterday, with its policy statement due out later today. Gains were broad-based although growth-sensitive sectors like financials, technology and industrials benefited from the interest rate expectations. Resource and energy stocks also received support form resilient commodity prices as the US dollar weakened again. By close the Dow Jones had gained 0.52% whilst the Nasdaq finished 0.39% higher.

Japan’s markets were closed for the last of the 3-day national holidays on Wednesday.
Shares in Hong Kong closed slightly lower this morning on expectations that the US Fed will keep interest rates unchanged and as investors began to discount pharmaceutical corporation Sinopharm’s debut gains. The market is fairly flat though with little direction from any major source. The benchmark Hang Seng closed 0.49% lower.

Britain’s top share index climbed higher in early trade this morning as commodity-backed stocks benefited from a resurgence in global commodity prices and investors remained optimistic over global economic prospects ahead of the US Fed’s rates decision due out later today. There is still concern that the market may have run ahead prematurely and future growth will be limited but for the moment, investors are bullish. The FTSE 100 has gained nearly 50% since its 6-year low reached in March this year. By midday, the FTSE 100 had gained 0.50%.

Share Price News

Gijima Ast Group Ltd of the Computer Services sector was certainly the morning’s biggest gainer. This is a good achievement in a session marred by bearish reluctance to buy. It gained 12.36% to sell for R1.00 per share at midday. Also performing well was Super Group Ltd of the Shipping and Ports sector. It improved by 8.74% to trade for R1.12 per share at noon.

Among the losing shares was Liberty International Plc of the Real Estate Investments Trusts sector. At midday, a share traded for R63.20 (a 7.43% loss). Of the Gold Mining sector, Simmers and Jack Mines Ltd continued to lose ground over concerns over market manipulation, concerning its equities, earlier this month. At midday, it had shed 4.88% to sell for R1.95 per share.

Sterling weakness

Because all currencies float relative to one another with no real tangible underpin and a myriad of risk factors, they are incredibly volatile relative to one another. We saw the pound drop to a five month low against the euro and also lose ground against a relatively weak US dollar.

A Standard Bank fixed income research report noted that both the US dollar and sterling are the victims of quantitative easing – i.e. printing.

The report went on to say, “And while we are not in favour of the Bank [of England] doing any further QE [quantitative easing] at this stage, we’d not be surprised at all to see the MPC push bond purchases up to GBP 200 billion or more in November and cut the deposit rate to penalise banks from holding excess reserves at the Bank.”

“More QE could spell more sterling weakness…”

In March the Bank of England announced that they would pump £75 billion of new capital into the British economy, which was the first time in the UK’s history that this measure was adopted. The current ceiling is £175 billion and the Bank of England has indicated that they are open to further loosening of monetary policy.

According to Wikipedia, the pound sterling is the world’s oldest currency still in use. It is the currency of the United Kingdom, its crown dependencies (Isle of Man and the Channel islands). It is the third largest reserve currency after the US dollar and the euro and the fourth most traded currency after the US dollar, euro and the Japanese yen.

The official name is pound sterling.

The Bank of England was formed in 1694 and began to issue paper money.

Prior to World War I, the UK had one of the strongest economies, holding 40% of the world’s overseas investments. This all changed after the war where it owed £850 million, mostly to the US.

In 1940 and agreement with the US pegged the pound to the US dollar at a rate of 1 = $4.03, but this rate was devalued by 30% on 19th September 1949 to $2,80.

With the breakdown of the fixed exchange rate system, the pound free floated from August 1971 rising to $2,65 in March 1972.

The pound has fallen against the euro over the last 12 months. A year back 1 euro would buy 79p. Now it’s up to 90,5p and may even head for parity with the euro.

The graph below is from Investec Asset Management and reflects the major currencies exchange rates versus longer term trends. It reflects the weak pound versus its own history.

The prevailing concern is the loose monetary conditions in the UK relative to other regions, the weaker domestic economy, weakness,

Source : Investec Asset Management

Its not just monetary policy but the fiscal policy that is of concern as the UK runs a large deficit.

All indications point to the possibility of the weakness continuing for a while yet. When combined with very low interest rates, this is not ideal for investors holding UK cash.

JSE focused on MPC’s interest rate decision

Local Markets

The JSE opened higher this morning in what many feel is just a technical bounce back from yesterday’s sell-off. The markets are focused on the MPC’s interest rate decision being announced later today. The inflation figures released earlier reveal a 6.4% increase in consumer price index for August, year on year. This is within the anticipated range and the rate is expected to be left unchanged. Equities also received support from Bharti Airtel sweetening its merger-bid for MTN. By noon, the All Share had increased by 1.42%.

The rand opened slightly firmer against the dollar this morning ahead of the release of August inflation data and a central bank interest rate ruling. The reserve bank is expected to leave interest rates untouched; however the increased CPI figures could prompt a slight rate cut. By midday, the rand traded at R7.41 to the dollar.

The oil price increased to over $70 per barrel in a technical rebound after its 3.2% decline in yesterday’s session. The drop yesterday came as a result of more demand uncertainty after Asia’s top oil-refiner, Sinopec, commented that China’s diesel demand remained depressed. The oil price seems range-bound in the absence of more penetrating news on either the supply or the demand side whilst the firmer dollar is also limiting gains. A barrel of Brent Crude cost $68.94 at midday.

International Markets

Stocks in the US endured volatile trade on Monday as ailing commodity prices and financial stocks placed strain on the broader index. Since bottoming at a 12-year low on March 9, the Dow has gained 50% whilst the Nasdaq has recovered 68%. The upturn is largely due to slowly improving economic data and extraordinary amounts of fiscal and monetary stimuli. Lately, however, analysts agree that the turnaround has come too quickly and with too much vigour. Focus in the next few weeks will be corporate earnings, which many expect to be less upbeat than investors have anticipated. By close, the Dow Jones had given up 0.42% whilst the Nasdaq finished 0.34% in the red.

The Japanese markets were closed on Tuesday for national holidays.

Shares in Hong Kong finished higher this morning after a round of bargain-hunting overnight. The market is consolidating and investors are keen to identify cheap stocks with value. Airline shares received support from a brief fall in the oil price, underpinned by mainland initiatives to restructure the aviation industry. The benchmark Hang Seng closed 1.06% higher.

Shares in London gained slightly this morning as financial and resource stocks regained demand. The mining sector led the advance as copper prices and other commodities improved in strength. Oil majors also gained from the rally in crude oil prices. However, the general consensus is that the market has overheated recently and is set to stagnate for a while. For the moment, investors remain interested in the outcome of the US Federal reserve meeting beginning today. By midday, the FTSE 100 had improved by 0.90%.

Share Price News

African Dawn Capital Ltd of the AltX sector was among the morning’s most voluminous gainers. It gained 8.00% to sell for R1.08 per share at midday. Also performing well was Wesizwe Platinum Ltd of the Platinum sector. It improved by 4.04% to trade for R2.06 per share at noon.

Among the losing stocks was Mr Price Group Ltd of the Retailers – Soft Goods sector. At midday, a share traded for R33.76 (a 3.54% loss). Of the Metals and Minerals sector, Metorex Ltd also lost ground. At midday, it had shed 1.96% to sell for R2.50 per share.

Equity markets shed value amid profit-taking; gold price slips

Local Markets

The JSE was weaker this morning in a session marred by profit-taking. Commodity prices fell significantly whilst gold counters dropped as well. The market is also poised to react to a host of economic indicators due out this week. Retail sales data is out later today, the interest rate decision tomorrow and CPI and PPI out later this week. The weaker rand is also contributing to the pressure on dollar-based commodities. By noon, the All Share had given up 1.18%.

The rand performed poorly against the dollar during the early session today, mainly due to the weaker gold price. As the dollar strengthened slightly and commodity prices fell, the rand found itself under significant pressure. With South Africa being a major producer and exporter of gold, the metal’s downward move is weighing on equities and the local currency.

The market is awaiting the outcome of the MPC’s interest rate decision tomorrow, where the general consensus seems to be that the interest rate won’t be changed on inflation concerns. At noon, the rand traded at R7.51 to the dollar.

The gold price fell below the $1000 level it reached last week. It failed to pass last year’s $1030.80 record high as predicted. The loss is largely attributed to a bout of profit-taking on recent gains. Physical demand for the metal from Asian jewelers remains relatively weak and many analysts anticipate further drops in the gold price once investors become more bearish and begin to speculate elsewhere. With the Japanese markets closed for holidays and the Singapore physical market closed for a Muslim holiday, trading was subdued. By midday, a troy once traded for $998.70.

International Markets

Stocks in the US gained on Friday as Procter & Gamble and major home-builders advanced on positive brokerage comments. There appears to be a growing sentiment that the economic recovery will be strong enough to sustain corporate profits. The Dow reached a new high and capped its best week in 2 months last week. Many analysts are upgrading equity ratings and revising earnings forecasts upwards, so the bearish trend seems set to continue. By close on Friday, the Dow Jones had gained 0.37% whilst the Nasdaq finished 0.29% higher.

The Nikkei is closed until Thursday as Japan enjoys 3 consecutive days of holidays.
Shares in Hong Kong slipped somewhat overnight to end a volatile session which saw banks, property and mainland retail stocks advance only to give up gains made as investors booked profits. With little direction from other Asian markets, Chinese investors appear cautious following last week’s gains. Profit-taking seems the order of the day. The benchmark Hang Seng closed 0.70% lower.

The FTSE 100 declined during the early session this morning. Pharmaceutical stocks strengthened but gains were capped by deterioration in the mining and banking sectors. With little direction from Asia and Wall St, traders are booking profits from last week’s rally. Banks were among the worst performers, led by Royal Bank of Scotland which lost over 2.3%. By midday, the UK’s top stock index was 0.75% lower.

Share Price News

New Europe Property Investments Plc of the AltX sector was among the morning’s most voluminous gainers. This is a good achievement in a session marred by selling. It gained 5.26% to sell for R25.00 per share at midday. Also performing well was Steinhoff International Holdings Ltd of the Furnishings and Floor Coverings sector. Investors reverted from weakened commodities and bank stocks towards retail goods and like stocks. It improved by 1.68% to trade for R16.38 per share at noon.

Among many of the losing resources was Metorex Ltd of the Metals and Minerals sector. At midday, a share traded for R2.61 (a 8.74% loss). Of the Gold Mining sector, Simmer and Jack Mines Ltd also lost ground. With a weak gold price and an investigation underway into trade manipulation with its equities last week, the company’s shares are under severe pressure. At midday, it had shed 5.13% to sell for R1.85 per share.

Market Wrap

The JSE All Share index touched 26000 this week. Today it ended slightly down, but there are many share prices are trading up at new 12 month highs, giving an indication that liquidity has returned and investors have been willing to increase their risk levels.

Gold in US dollars remains above the important $1000 level. In New York this morning it has moved up to over $1017. Gold has been above $1000 before, but given its steady advance over many years, without spiking up, the ongoing trend appears to be intact.

The price of oil has also been in a steady upward move this year from its low of around $34 / barrel at the end of 2008 it has steadily moved up to its current $70/barrel having traded up to $74.

Bond yields have drifted lower on strong demand. The yield on the shorter term government bond, the R154 has come back to 7,24. The medium term R157 with a maturity in 2015 traded at 8,06% and the R204 with a maturity in 2018 at 8,57%.

The rand has been incredibly strong over the past few weeks and indeed this year, but lost some ground today, still trading at R7,44 / US dollar, R12,09/pound and R10,95 / euro. This is concerning the Reserve Bank and may push them to lower rates next week, despite the 5% cut already in 2009.

The rally in local share prices, bonds and the rand has largely been a function of global investors piling into risk assets and in search of yield and dollar returns. In a meeting today, an investment manager reiterated what I spoke about yesterday, saying that in discussions in London last week there are now no bears, “everyone” is bullish.

Furthermore we are also starting to see the sentiment changing from one of selling on the rallies, to buying on the dips.

The manager also mentioned that given last years scare on liquidity, global managers are now far more aware of how liquid their portfolios are. Therefore they are increasing their exposure, but with a finger on the trigger, willing to pull back quickly if need be.

Locally a number of shares made new highs, especially the retailers. This list included Mr Price, Shoprite, Clicks, Foschini, Spar, Pikwik, and Cashbuild.

Equity markets pull back on profit-taking as caution prevails

Local Markets

The JSE weakened during the early session this morning. Globally, markets succumbed to profit-taking and a resistance to extend gains further without due cause. Futures also closed out yesterday after equities rallied, which pushed stock prices lower today. Markets are taking a breather today and we can expect little volatility given the lack of news or event risk. By midday, the All Share had given up 0.47% on profit-taking ahead of the weekend.

After extending gains all week, the rand weakened against the dollar this morning. The greenback gained slightly following a drawback in equities markets and the SA central bank’s comments that the currency may be overdone certainly didn’t help matters. Overall, fundamentals look good for equity markets so it is likely that the rand can gain even further in upcoming sessions but for now, it looks set to trade around the R7.50 level. The rand’s decline comes after hitting a fresh 13-month high of R7,29 to the dollar yesterday. At midday, a dollar cost R7.43.

After its run of good form recently, gold gave up some profits made as equity markets performed poorly and the dollar managed to gain some protection. By midday, a troy ounce traded for $1013.70.

International Markets

After three consecutive sessions of gains, stocks in the US slipped on Thursday as caution over over extensions filtered through the market. Analysts remained weary over the justification for further market gains notwithstanding the round of solid economic data this week. Many feel as though the market is overbought and susceptible to pullback. The biggest losers were financials, energy and resource stocks which rallied significantly in previous sessions. The Dow Jones closed 0.08% down whilst the Nasdaq shed 0.30% in value.

Japan’s stock average lost ground overnight following Wall St’s pullback. Financials were hit the hardest after consumer finance firm Aiful Corp put in requests to reschedule its debt repayments. Banks shares were hit by political risk as new banking minister Shizuka Kamei reported intentions to introduce a moratorium on some loan repayments to help small- to medium-sized businesses and struggling individuals. Overall, trade was cautious ahead of a 5-day holiday in Japan. The Nikkei finished 0.70% lower this morning.

Shares in Hong Kong also lost ground overnight, pulling back from the previous session’s 13-month high. Investors were concerned that gains were overextended but growing optimism over an economic recovery managed to limit losses. Abundant liquidity also prompted enthusiasm over further gains, allowing local equities to remain unaffected by sharp losses in the mainland market. The benchmark Hang Seng closed 0.67% lower this morning.

The market in London was focused on financial stocks this morning after Lloyds Banking Group indicated intentions to dispose of some of its toxic assets insured by the government. However its proposed scheme to alter the commercial terms under which it currently operates public-backed funds did little to convince investors that Lloyds was poised to remove itself from government support. The group is desperate to avoid more governmental control but other fundraising routes have proven fruitless. The banking sector is under fire this morning. By midday, the FTSE 100 was trading flat at 0.17% higher.

Share Price News

Alliance Mining Corporation Ltd of the AltX sector was among the morning’s biggest gainers. This is a good achievement in a session marred by selling. It gained 7.62% to sell for R2.40 per share at midday. Also performing well was Clicks Group Ltd of the Food and Drug Retailers sector. It improved by 6.05% to trade for R21.74 per share at noon.

Among many of the losing stocks was Bowler Metcalf Ltd of the Containers and Packaging sector. At midday, a share traded for R5.65 (a 5.83% loss). Of the Metals and Minerals sector, Metorex Ltd also lost ground. At midday, it had shed 4.84% to sell for R2.95 per share.

Investor psychology

It is absolutely amazing how quickly investor sentiment can change, moving prices and values quite quickly in a short space of time. Just 6 months back at the beginning of March, the pervasive sentiment was a negative one – and for lots of very good reasons.

Now just 6 months later mass global pessimism has quickly turned back to an optimistic view, taking prices back up.

And then many investors wonder what causes asset prices to be so volatile!

Investorpedia defines Market psychology as “The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.”

Now we know that there is no such thing as “the market”, but it’s the composite of all participants that contribute to the pervasive mood.

Mentor to Warren Buffett, Benjamin Graham humanised market sentiment by creating an imaginary investor, called Mr Market. His moods can fluctuate anywhere between incredible optimism and overwhelming depression. One day he will nominate a higher price to buy or sell, the next day he might increase it, lower it, or even appear uninterested in whether he buys or sells.

It’s this sentiment that drives volatility and hence market inefficiency.

As a fund manager pointed out this morning in a presentation, if markets were perfectly efficient, with all participants having exact future knowledge then there will be no opportunity for profit. Because a current price is the discounted value of all future cash flows, if these future cash flows were known perfectly, as was the one true discount rate, then a true price could be established, which would not fluctuate over time.

The reality however is that markets move at varying speeds from optimism to pessimism and back again – not on a consistent or defined basis, but with a high degree of regularity that it is a truism that markets are mean reverting.

Astute investors, whatever their methodology and processes used, will look to take advantage of this fluctuation from the mean. I.e. they will look out for deviations and take the other side of the trade.

Deviation from the mean, or volatility can and only does occur when the mass of investors take an increasingly optimistic view or an increasingly pessimistic view of specific shares, bonds, market sectors or even geographic regions.

As the local JSE touches 26000 and earnings have declined, so the value has declined dramatically from 6 months back. The historical price to earnings now across the market is at 15 times. 6 months back it was less than 9 times historical.

While optimism is self fulfilling, as it escalates, so investors should rather look to reduce exposure.

Equities surge forward on global market optimism

Local Markets

The JSE opened higher this morning following strong performances in Asian markets overnight. Wall St finished higher again which prompted a rally in Asia as sentiment improves over the prospect of a global economic recovery. Commodity prices are surging whilst the dollar continues to weaken, giving emerging currencies buoyancy. It’s green across the board today. At midday, the All Share was 1.32% higher.

The rand continued its bullish run against the weakened dollar during the morning session. There appears to be no respite for the dollar which dives further down with each set of positive economic data that is released as hopes of an economic recovery are spurred on. Emerging currencies, equities and commodity prices have benefited from the improved market sentiment. By noon, the dollar cost R7.33.

The gold price continued its run of good form this morning. With the dollar slipping further and the oil price climbing higher, gold is set to extend gains. Historically, the relationship between gold and oil indicate that if oil were to reach $100 per barrel (as anticipated in the next 12 – 18 months) then the gold price should reach $1500 or higher. The current surge is also attributed to gold’s use as a hedge against inflation and currency risk. By midday, the metal had reached $1019.55 per troy ounce.

International Markets

Stocks in the US climbed higher for a third consecutive day. The broad-based rally reached a fresh 2009 high following the release of encouraging economic data that indicates a probable turnaround for the global economy. Energy and manufacturing companies were among the biggest gainers, reaping the benefits of improved industrial demand and a weaker dollar (which renders US exports competitively priced in overseas markets). US industrial output increased for a 2n consecutive month in August whilst crude inventories fell last week, both indicating a rebound in demand. The Dow Jones finished 1.12% higher whilst the Nasdaq closed 1.45% up.

Japan’s benchmark index rose overnight as exporters locked in gains following positive US economic data. Signs in the US that industrial demand is on the up served to elevate steelmakers and other manufacturers but banking stocks continued to subdue the market. Japan’s new minister for banking and market regulation, Shizuka Kamei, issued statements recently that reforms would be tightened in the banking sector. By close this morning, the Nikkei had gained 1.68%.

Shares in Hong Kong gained overnight to reach a 13-month closing high, tracking firmer markets overseas. With ample liquidity and optimism over a global recovery, the Hang Seng looks set to climb higher in upcoming sessions. Banks continue to lead the bourse as major player HSBC surged nearly 4%. The benchmark index closed 1.71% higher this morning.

Equities in London continued their strong run of late. Increased reports of bid activity continue to excite investors. With the index weighted heavily towards energy and resource stocks, the drive forward is set to continue as these stocks find support from the global economic recovery prospects. Concerns with the local economy (such as the unemployment figures released recently) are being overlooked as short-term distractions as investors focus on worldwide movements. The FTSE 100 was trading 0.70% higher at midday.

Share Price News

Aveng Ltd of the Other Construction sector was among the morning’s most voluminous gainers. This is a good achievement in a session buoyed by resources and energy stocks. It gained 4.20% to sell for R46.37 per share at midday. Also performing well was Dimension Data Holdings Ltd of the Computer Services sector. It improved by 3.64% to trade for R7.68 per share at noon.

Among the losers was the ever-volatile Metorex Ltd of the Metals and Minerals sector. At midday, a share traded for R3.15 (a 5.97% loss). Of the Electrical Equipment sector, Allied Electronics Corporation Ltd also lost ground. At midday, it had shed 2.00% to sell for R24.50 per share.

Cyclical Capital Expenditure

If you look around you will notice that cycles are everywhere (not bicycles). Knowing which cycles are influential and what part of the cycle you are in can help you plan how you should react. One area where cycles are very prevalent is in the economy, both locally and globally, and by extension business and markets are affected greatly depending on which cycle you are looking at and what part of the cycle you are in.

Many governments around the world use their size to try and influence various factors in their economies (and sometimes even outside of their economies) and many times they try and implement counter cyclical measures to even out the economy. Their success or failure naturally depends on how much ‘ammunition’ they are able to use in relation to other potential players and the timing of the usage.

One measure that is taken locally is for the Reserve Bank to increase foreign reserves when the rand gets strong. If done responsibly dealing in the forex market can have the effect of slightly reducing the volatility of the rand. It should also increase the value of their reserves as they buy forex when the forex is relatively weak. As we saw, however, in 1998 they don’t have the ammunition to completely influence the movement of the rand, and have now learnt to use the forex market as a tool of managing reserves rather than a mechanism to influence exchange rates.

In other areas the government looks to balance out its expenditure and investment with the private sector. When the private sector is strong they are able to retire debt and, as Ian mentioned yesterday, reduce debt as a function of GDP. This is because the private sector leads the way, and spends as the prospect of a good return on investment is high.

Return on investment is logically a leading indicator for private capital expenditure, and so when the real return on investment goes negative we see capital expenditure falling (companies generally only make investments that they will be profitable). Private capital spend has now fallen into negative territory as a result of the slowing of the local economy. This can be seen in the chart below.

Source: SIM

It is in times like this where the private sector is in distress that we look to the government to increase spending to help prop up the economy. The government has a greater responsibility than just making profitable investments at the expense of other objectives.

South Africa is in a desirable position in that the government was fiscally responsible when the economy was strong, and now has the ability to raise capital in the debt market at reasonable rates. Debt to GDP levels will increase during the recession, but hopefully by not too much that it handbrakes the ability of the countries economy to recover (by increasing the debt repayment amount too much).

After years of strong private capital expenditure we have entered a tough period, let’s hope this isn’t an extended downturn, and that government will balance this lack of expenditure out through their on expenditure.

The JSE opened firmer this morning, taking direction from strong Asian markets and an improved Wall St performance. The incredibly strong local currency was limiting gains though as exporters were unable to reap the full gains from stronger demand in overseas markets. Retail sales data and the PPI in the US were better-than-expected yesterday, and coupled with the Fed Chief Ben Bernanke’s positive comments over the economy, investors were bullish in early trade this morning. By midday, the All Share was 1.35% up.

The rand continued its march against the dollar as the dollar weakened further abroad and the gold price once more. The rise in US equity markets also assisted the rand and it seems the emerging currency is likely to trade in the range R7.30 – R7.38 today. At noon, a dollar cost R7.37.

The gold price surged again to hover about the $1010 level this morning as the dollar hit a 1-year low against a basket of major currencies, boosting the metal’s appeal as an alternative asset. The dollar’s weakness as well as growing enthusiasm over an imminent economic recovery is prompting investors to snap up equities and commodities. Some are also buying gold as a hedge against inflation risk. By midday, the gold price had risen to $1019.40 per troy ounce.

International Markets

Stocks in the US rallied on Tuesday to 2009 highs after positive manufacturing and retail data surfaced to boost commodity prices and the equities of materials companies. The upsurge in retail data reinforced investor sentiment that economic demand is indeed rebounding. An increase in the government’s Producer Price Index also signals increased consumption of raw materials, which sent metals prices higher as well as commodity-backed stocks. Also adding to the impetus were the comments by fed Chief Ben Bernanke that the recession was probably drawing to an end. By close, the Dow Jones was 0.59% higher whilst the Nasdaq finished 0.52% in the green.

Japan’s benchmark index rose overnight as Canon Inc and other exporters received support from many corners over optimism over the US economy. Strong retail sales data and improved manufacturing data in the US bolstered confidence in investing circles that consumer demand and the general state of the US economy was on the upswing. The yen halted its advance against the dollar, which also assisted exporters. By close this morning, the Nikkei had risen 0.52%.

Shares in Hong Kong climbed % overnight to a 13-month closing high. The surge was led by banks on increased optimism over an imminent global economic recovery. The Bank of China, HSBC and the China Construction Bank were among the biggest gainers. The benchmark Hang Seng closed 2.57% up this morning.

London equities extended gains made this week, setting the course for a 4th consecutive session of gains as investors join the global rally over optimism that economic recovery prospects were improving vastly. After US Fed Chief Ben Bernanke’s comments over the likelihood of the recession’s close, traders became bullish. However, the governor of the Bank of England, Mervyn King curbed enthusiasm with a contrasted outlook that the UK recovery would be “slow and protracted”. Further direction will be taken from UK unemployment data, due out later today. AT midday, the FTSE 100 was trading 1.26% higher.

Share Price News

Drdgold Ltd of the Gold Mining sector was among the morning’s most voluminous gainers. This comes on the back of a much improved gold price during the morning session. It gained 4.75% to sell for R6.40 per share at midday. Also performing well was Arcelormittal SA Ltd of the Steel sector. It improved by 4.68% to trade for R118.95 per share at noon.

Among the losing stocks was CIC Holdings of the AltX sector. At midday, a share traded for R1.12 (a 6.67% loss). Of the Metals and Minerals sector, the ever-volatile Metorex Ltd also lost ground. At midday, it had shed 5.88% to sell for R3.36 per share.

Relative size of bond markets

Given the explosion of debt across the developed and emerging markets over the decades, the primary and secondary market for buyers and sellers wishing to trade this debt is enormous. The sheer scale of this market is dramatically seen in the size of the debt market in the US.

The US debt market is the biggest in the world, but when compared to the local SA bond market the disparity is disproportionally magnified.

The nominal value of local debt is R827 billion as at the end of March follows. Over the last 2 years at least the total value of debt outstanding has not risen dramatically.

From a purely government perspective, debt as a function of the country’s GDP has steadily been falling.

Source : Bond Exchange

Half of the total issued debt in South Africa is direct government at R436 billion with state owned enterprises comprising another R85 billion. The balance is banks, securitised paper, corporates, commercial paper and water authorities.

This total market value in US dollar terms is approximately $110 billion.

This pales into insignificance when one looks at just the new issuance in the US debt markets for the first half of 2009 – i.e. just the value of new debt issued in 6 months.

According to the US Securities Industry and Financial Markets Association, total new issuance in the first half of 2009 came in at $3,42 trillion (this includes new equity issuance of $124 billion), up from $3,01 trillion in the first half of 2008.

The US government was a big net borrower, with Treasury raising $860 billion and Federal Agencies a further $704 billion.

Mortgage backed security issuance came in at just over $1 trillion for the first half of 2009.

With Lehman’s collapsing exactly one year back, new issuance collapsed in Q3 and Q4 of 2008 coming in at “just” $1,7 trillion for these 2 quarters.

Years of new debt being issued has brought the size of the total outstanding US bond market debt to a phenomenal $34,2 trillion at the end of March 2009. This is some 311 times the size of the total outstanding debt that SA has .

In 1996 this total outstanding debt across the US government, municipalities, corporates, asset backed and Federal Agencies was $12,2 trillion and so has almost trebled in the 12/13 years.

The big question is where are the global net savings required to lend to these borrowers?

Mixed performances for equities globally; gold rallies again

Local Markets

The JSE opened slightly higher this morning on improvements in US markets but gave up gains as the session progressed. The market is awaiting a slew of economic data due out in the US today. Data on manufacturing, retail sales and inflation should give direction to global markets. The rand’s continuing strong performance is buoying movements as resources and other bellwether stocks remain fairly flat today. By noon, the All Share was 0.45% lower.

This morning, the rand remained at levels reached at close yesterday. Having attempted once again to break the R7.40 level, traders are now taking direction from the euro’s performance. Should the euro venture past the $1.47 mark, the rand is sure to track similar gains. Currency analysts agree, however, that the rand will remain within a range of R7.38 – R7.55. By midday, it was trading at R7.42 to the dollar.

The gold price rallied once more to settle around the $1000 level this morning. After a bout of profit-taking, the market is consolidating within the $980 - $1030 range. Volatility in the currency markets is continuing to give support to the precious metal’s appeal as a safer investment. It will be difficult to maintain significant forward momentum, given the large volume of long US gold future positions. At midday, a try ounce cost $997.10.

International Markets

Stocks in the US climbed higher yesterday as reports of increased merger activity improved investor sentiment. As the market has improved more than 50% since March, investors still see growth potential. Many companies in the utility sector have received interest from overseas investors however optimism over these potential deals was undercut by trade friction concerns after Washington imposed special duties on Chinese tyre imports. The Dow Jones closed 0.22% higher whilst the Nasdaq finished 0.52% in the green.

Japan’s benchmark index recovered losses made in previous sessions in choppy trade overnight. Canon Inc and other exporters buoyed the market as the dollar improved slightly against the yen but the index fell into negative territory at one point as the dollar dropped back below the 91 yen level. Japan Airlines was unable to secure further gains despite additional reports that Air France- KLM was joining the list of potential suitors seeking a minority stake in the loss-making carrier. The Nikkei closed 0.15% higher this morning.

Equities in London exhibited resilience during the early session as investors weighed up reports of a better-than-expected August inflation data. It remains a bear market but there were glimmers of hope as brokers upgraded ratings on certain constituents of the FTSE 100. News of another oil find off the coast of Brazil helped BG Group to gain significantly whilst engineering stocks received support from Amec’s upgrade from “in line” to “outperform” by Cazenove Securities. By midday, the FTSE 100 was 0.24% lower.
Share Price News

Pinnacle Technology Holdings Ltd of the Computer Hardware sector was among the morning’s most voluminous gainers. This achievement comes on the back of a promising annual report released on the JSE this morning. It gained 5.61% to sell for R3.20 per share at midday. Also performing well was Mustek Ltd of the same sector. Having been given direction from Pinnacle’s performance, it improved by 3.73% to trade for R2.50 per share at noon.

Among the losing resources was Gold One International Ltd of the Gold Mining sector. At midday, a share traded for R2.10 (a 4.11% loss) after a bout of profit-taking. Of the Banks sector, Absa Group Ltd also lost ground. At midday, it had shed 2.43% to sell for R120.00 per share.

Sasol's free cash flow

This morning oil from coal business, Sasol released their annual results to June. It was a case of much weaker profitability, but excellent cash flows. Ultimately it’s the cash flow that is important, but because of how earnings are accounted and the nature of the actual business there can and often is large discrepancies between reported profits and reported cash flows.

Sasol is a global company, with many divisions. Its biggest line of business is synthetic fuel from coal and gas.

In 2009 its earnings were down 39% from R22,4 billion to R13,6 billion. Headline EPS declined 33% to R25.42/share. The main reason for the large decline in profits was the decline in oil price and the large loss in the chemical cluster of R2,2 billion compared to prior year operating profit of R6,6 billion.

In addition profitability was negatively affected by competition related fines in the wax business of R3,9 billion (being not tax deductible resulted in higher tax) and the Inzalo share scheme costs of R3,2 billion.

At the same time that there was a substantial decline in profitability, cash flow generation came in at R48,2 billion – an improvement of 39% over the previous year. So operating profit fell to R24,7 billion, but cash flow from operations was nearly double this figure.

In the past a negative factor that some investors have noted on Sasol has been the lack of available free cash flow from operations. Free cash flow is operating cash flows before depreciation or amortisation, less capital expenditure and dividends. This is the amount of cash flow that the company has left over after it has paid all its expenses including investments.

In the case of Sasol a lot of the profitability has come at the expense of huge and ongoing capital expenditure programmes, diminishing its free cash flows. Over the longer term, shareholders should enjoy a higher return from the larger company, but this invested capital expenditure is not risk free.

In 2009 after paying dividends, higher tax and finance charges, shareholders had R31 billion in cash retained compared to R18 billion in 2008. Capex then took R15,6 billion of the R31 billion.

Management have reprioritized capital expenditure over the next 2 years to R15 billion per annum. They have also suspended the share repurchase programme and with improved working capital management enhanced the cash position.

The net effect is that cash on the balance sheet increased from R4,3 billion to R20,6 billion at year end.

In the previous 2 years the combined profit was R41 billion with cash flow from operating activities of R33,7 billion. Of this, capex took R22,8 billion and so the reversal in the cash position in 2009 has been big.

Using diluted earnings per share of R22,8, the share price trades on a historical multiple of 13 times. The share was trading on a multiple of 6,6 times. The company has a market capitalisation of almost R200 billion and ranks 6th largest on the JSE.

The price is off substantially from its peak. Despite the lower earnings, this is a long term story linked to the global oil market.

Red across the board as trader’s book profits and the dollar strengthens

Local Markets

The JSE opened weaker this morning following subdued performances in Asia as market participant’s book profits from recent rallies. There is significant doubt that last week’s strong run in equity markets can continue given the fall in commodity prices. There is further profit-taking anticipated for the day with little other event risk and a stable rand. By midday, the All Share was 2.25% lower.

The rand was slightly weaker against the dollar this morning amid risk aversion and reports that the government may block the proposed Bharti-MTN merger. With weaker equity markets all around and the concerns over the MTN deal, risk aversion is the prevailing flavour of the day and the rand looks set to remain at current levels. By midday, the rand was trading at R7.49 to the dollar.

The gold price fell short during today’s trade as the dollar rebounded slightly on short-covering and dragged down commodities and equities. Investors are questioning whether gold can remain near levels reached last week where the weaker dollar prompted investment in higher-yielding and riskier assets. Much of the gains made were attributable to funds where technical charts favoured gold but physical demand from individuals seems weak. At noon, a troy ounce cost $995.40.

International Markets

Equities in the US came off a five-day winning streak on Friday but still managed to post a solid gain for the week. As the oil price tumbled, data reflecting better-than-expected consumer sentiment in recent months and a bright earnings outlook for courier FedEx were not sufficient to motivate buying in an otherwise saturated equities market. The Dow Jones closed 0.23% lower whilst the Nasdaq lost 0.15%.

The benchmark Nikkei of Japan fell overnight as the dollar hit its lowest level against the yen in 7 months. The forex rate dramatically reduced exporters stocks but losses were capped, in part, by news that the struggling Japan Airlines was in talks with American Airlines and Delta Airlines over potential investment into the ailing company. The Nikkei closed 2.32% lower this morning.

Shares in Hong Kong fell overnight to their lowest close in 3 days as investors gave way to profit-taking. Despite advances being made by China stocks, traders were unwilling to speculate over further gains to be made after recent strength, given the subdued tones of markets globally. By this morning, the Hang Seng had lost 1.08%.

London equities also slipped during the early session today. With a retreat on Wall St on Friday and profit-taking in Asian markets, traders in London followed suit and booked gains made from recent rallies in the financial and resource sectors. Bid target Cadbury defied the trend, however, as it continued to reject advances from US food-producer Kraft. Given the valuable strategic benefits offered by Cadbury, the market is expecting Kraft to pursue the acquisition. By midday, the FTSE 100 was trading 0.89% lower.

Share Price News

African Dawn Capital Ltd of the AltX sector was among the morning’s most voluminous gainers. This is a good achievement in a session marred by selling. It gained 2.36% to sell for R1.30 per share at midday. Also performing well was Jubilee Platinum Plc Ltd of the Platinum sector. It improved by 1.83% to trade for R4.46 per share at noon.

Among many of the losing resources was Metorex Ltd of the Metals and Minerals sector. At midday, a share traded for R3.57 (a 5.05% loss). Of the Gold Mining sector, Harmony Gold Mining Company Ltd also lost ground. At midday, it had shed 4.57% to sell for R83.50 per share.

Sources of return

An astute local investment manager again reiterated to a small group this week that total returns from an asset only come from 2 sources. The day by day or week by week price movements are not in themselves indicative of the longer term returns.

Returns come from:

• The income / dividend generated and declared by the investment over time; and
• The pull to par effect. i.e. buying at the best possible discount to intrinsic value and waiting for the re-rating back to par / normalised level.

The first component – i.e. the income component - can typically only come from holding the investment over a period of time typically measured in years.

The second component is the re-rating from a cheaper initial level to a more normal or sometimes even expensive price. We all know that the danger to investors is when this works in reverse – i.e. an expensive asset declines in price negating any income received.

This same approach should be applied across all investable assets.

The combination of higher starting yields and more attractive valuations typically occur after major shake out periods.

As an example of this working in practice, global investment firm Schroder’s looked at real property returns over various rolling five year periods from 1971. These were then divided into 3 distinct periods - periods when the economy was operating at equilibrium, at full capacity at the start or where the economy was at spare capacity at the start. The metric used was the output gap which measures the level of spare capacity in the economy.

Source: Schroders

Although not infallible, the output gap looks like a useful indicator. In the 9 instances where the output gap was above 1 at the start (i.e. a strong economy), subsequent property returns generally disappointed (as indicated by the black bars).

On the other hand investing where there was an initial large negative output gap (i.e. weak economy) resulted in 8 out of 12 times producing subsequent superior returns (as indicated by the blue bars).

Equity markets rally as investors remain bullish

Local Markets

The JSE opened higher during the early session this morning, in consequence of a positive close on Wall St and encouraging Asian market performances. Miners and commodities offered firm support as the rand continues its strong run against the dollar. There is little profit-taking as sentiment remains bullish and investors are keen to join the rally. At midday, the All Share was 1.56% firmer.

The rand held firm against the dollar during the morning session. Traders seem unfazed by comments from the central bank and the IMF suggesting the currency is overvalued. The rand has rallied nearly 3% against the struggling dollar over the last week, supported by strong commodity prices and foreign events which continue to hamper the dollar. At noon, a dollar traded for R7.57.

Gold continued its climb upward and remained firm around the $1000 mark. As commodities gained from a strong rand, the gold price managed to gain 0.38% to trade for $999.90 at midday.

International Markets

US equities gained for the 5th straight session yesterday, marking the longest winning streak since November. The boost in investor confidence came from a successful Treasury bond offer as well as a bright earnings outlook for consumer products company Procter & Gamble. The strong demand for government bonds and the improved consumer spending have inspired bullish sentiment and there appears to be little profit-taking pressure. The Dow Jones closed 0.84% up whilst the Nasdaq gained 1.04%.

Japan’s Nikkei average lost ground overnight following a downward revision to gross domestic product (GDP). The latest GDP figures suggest that the country’s economy was growing at a slower pace than previously expected. With investors’ confidence undermined, stocks lost on a broad range however the losses were mitigated by strong indicators from the stock futures over the last few months. The index finished 1.28% higher this morning.

Shares in Hong Kong gained overnight to close at their highest aggregate level in more than 12 months. After a slew of Chinese economic data for August that suggested the mainland’s economy has stayed the course, the Hang Seng improved by 1.49%.

Equities in London progressed during the early session as retail stocks appeared attractive after the previous session’s losses. Positive Chinese economic data left most Asian markets in the green, which only spurred optimism in London. Resources and financials also moved back onto the leaderboard, a sign that the rebound is receiving broader support. Market sentiment was also improved by the Bank of England’s decision not to increase the value of its quantitative easing programme. By midday, the FTSE 100 was 0.66% up.
Share Price News

Fairvest Property Holdings Ltd of the Real Estate Holdings and Development sector improved significantly this morning. As earnings-reporting season draws to an end and little event risk is on the cards, retailers and property stocks appear to be doing well. By noon, a share traded for R1.00, marking a 11.11% gain. Rex Trueform Clothing Company Ltd of the retailers – Soft Goods sector also managed to gain. By midday, it had improved 11.11% to trade for R10.00 per share.

Among the morning’s losers, Simmer and Jack Mines Ltd of the Gold Mining sector performed particularly poorly as investors booked some profits. At noon, a share cost R2.16 (a 1.37% decrease). Also losing ground was Peregrine Holdings Ltd of the Investment Banks sector. At midday, a share traded for R9.38 each, reflecting a 1.16% loss.

Local fund managers going offshore

As a matter of course we spend a fair bit of time with various investment managers. A question that we often ask of local fund managers when they purport to have the ability to invest on global markets is this: “Does a south African fund manager really have a good understanding of how to invest globally?”

The answer in many cases is a surprisingly yes.

A few points on this:

• Given that local managers have built up some expertise in emerging markets, this is a definite positive attribute which can be used when researching companies especially in other higher growth emerging markets.

• In fact this extends to analysing many first world domiciled companies that are increasingly generating profits from emerging markets.

• A point made this week by a local manager, is that despite the fact that there are thousands of global companies in the indices alone let alone across the various exchanges, one does not need to have a solid understanding of them all. Rather, good managers build up a solid understanding of a smaller universe of companies and then invest into a subset of these.

• Where a fund manager has a repeatable and proven process, then he may have an advantage on the international arena. For example local fund managers have a good understanding of the drivers of cell phone operators, banks and beverage companies operating in an emerging market economy, which can then be extended to similar companies globally.

• The availability of information has definitely levelled global playing fields. I.e. irrespective of where companies are domiciled or where the fund managers are located. With sources of data from the likes of Reuters, Bloomberg and the internet etc, the availability of information and data is now ubiquitous.

• The physical location out of the traditional New York or London for a global fund manager is an advantage, if one assumes that there is a high degree of “herd instinct” with many fund managers, especially the larger “institutional” type managers which often have a bias to constructing their portfolios close to the global indices.

• Some local fund managers running global funds have a greater appetite and ability to search out and research the “smaller” global companies, which many New York / London based fund manager cannot invest into because of the sheer scale of funds that they are managing. I.e. smaller fund size is not a disadvantage, but rather an advantage.

The skill or lack thereof, does not reside in the physical location of a fund manager. We will not avoid looking at a global fund manager because of this factor, but rather concentrate on what are the more important attributes.

Weak dollar plays major role in global equity market rallies

Local Markets

The JSE opened higher this morning as the market took direction from improved Asian market performances and a positive close on Wall St. A number of key corporate players in the US revised their profit-forecasts upwards yesterday, prompting the Dow higher. These gains filtered through to Asian markets and there appears to be a return of risk appetite in equity markets. The rand’s slight retreat after recent gains also helped resources and other forex-sensitive stocks. At noon, the All Share was trading 0.58% higher.

The rand was slightly weaker on open this morning, having rallied in the afternoon session yesterday on speculation that the MTN-Bharti deal was near finalization. However, the subsequent denial that the parties had reached agreement sent the rand lower. The reserve bank governor’s comments, on Reuters last night, that the rand may be overdone at current levels certainly didn’t help matters. By noon, the rand was trading at R7.60 to the dollar.

The gold price improved this morning after falling below the $1000 per ounce mark the previous day. The dollar’s continuing weakness is helping the precious metal as traders retreat from the greenback as a reserve currency towards safer assets such as gold. At midday, a troy ounce cost $986.65.

International Markets

Equities in the US closed higher on Wednesday as industrial and technology companies locked in gains from a weakened dollar. The dollar’s fall to a 2009 low rendered US produced products comparatively cheaper in overseas markets. Among the biggest winners were earth-moving equipment manufacturer Caterpillar Inc and tech giant Google Inc. It would appear that investors are shifting more of their funds into riskier assets as the dollar continues to lose ground. By close, the Dow Jones was 0.53% up whilst the Nasdaq gained 1.11%.

The benchmark index in Japan made its largest single-session gain in two weeks as a return of risk appetite helped shares recover throughout Asia and banking equities rebounded after recent losses. There were a number of individual companies that gained after media agencies reported take-over bids and profit-forecasts that were higher than the previous year. However, gains were capped marginally by the yen’s strength relative to the dollar. The Nikkei closed 1.95% higher this morning.

Shares in Hong Kong finished in the green this morning. Chinese bank stocks were regarded favourably as traders speculated that Beijing was unlikely to clamp down on lending ahead of national day celebrations in October. The Hang Seng closed 1.05% higher this morning.
London stocks continued their good run this morning in a broad-based rally, led by resources and financials. By close yesterday, the index had broken the 5000 point level, marking a 45% improvement from its March low-point. The re-emergence of merger and acquisition (M & A) activity has spurred investors on as a feeling that global economies may well be recovering continues to grow. The FTSE 100 was marginally lower at 0.07% under by midday.

Share Price News

Murray and Roberts Holdings Ltd of the Other Construction sector secured voluminous gains this morning. At noon, it had gained 4.30% to trade for R58.00 per share. Also performing well was Exxaro Resources Ltd of the Metals and Minerals sector. As resources led the bourse this morning, Exxaro gained 2.27% to sell for R90.00 per share at noon.

Among the morning’s losers was African Dawn Capital Ltd of the AltX sector. Its shares traded for R1.25 each (a 10.71% decrease) after gaining the previous session. Also suffering from profit-taking was Alliance Mining Corporation Ltd also of the AltX sector. By midday, its shares sold for R2.76 each, reflecting a 4.83% loss.

Gold Breaks Above $ 1 000

We have been keeping a closer eye on the price of gold than we would usually since the collapse of Lehman Brothers nearly 1 year ago. The reason for us doing so is that gold can display some properties that not many other assets are able to.

It is fairly common knowledge that gold exhibits a couple key characteristics and two of them are that gold can either be held as an asset or as a currency. Holders of gold as an asset would be holding this commodity on the premise that its price will increase and their return will be captured in asset price appreciation. This assumption is generally founded on a commodity cycle occurring.

Another reason for holding gold would be for its ability to store real value. With monetary supply around the world reaching epic proportions this reason has been gaining some traction for the following reasons:
• In uncertain times investors like to hold real assets.
• Historically low interest rates have reduced the yield on holding cash. As commodities don’t pay out a yield, when cash rates decrease the opportunity cost of holding a non yielding asset (read gold) decreases.
• Money supply now will result in inflation in the future if governments don’t withdraw the liquidity in time when the velocity of money increases again. High inflation periods have typically been good times to hold commodities.

It is interesting to compare two gold charts. One is denominated in euros and the other US dollars. You will notice that the price in USD is back at similar levels that it was at in March this year, while in EUR the price is down over 10%. The shape of the two graphs is also slightly different indicating the relative strength of the currencies over this two year period. In general the USD has depreciated relative to the EUR, but there have been periods of USD strength, notably around October last year.

Looking from another perspective, it’s interesting that the largest pure gold mining company, Barrick Gold, has announced that they will be eliminating all of their gold hedges which will be funded by a $3bn share issue. Basically a lot of gold companies have historically hedged their book (entered into contracts to deliver a fixed amount of gold at a fixed price) to reduce the volatility in their profits. A company that is increasing their hedge book is essentially expecting the price of gold to fall, while those unwinding expect the asset to rise in price.

Management don’t always get these decisions right, but the decision by Barrick is a clear indication that they expect the gold price to continue to track higher.

The JSE opened lower after Asian markets performed poorly and profit-taking among miners. Whilst the rand remains strong and gold is still a prime asset, equities look set to benefit from a return of risk appetite. Even though US markets closed higher yesterday, the general feeling is that equity stocks may have run ahead of the actual global recovery. By midday, the All Share was 0.30% down.

The rand was stable around the R7.50/dollar mark during the morning session. If anything, it looks overdone and is set to consolidate for the rest of the day. Event risk is minimal as the global calendar remains empty. Only Friday’s US consumer confidence data will bring about any major changes. At midday, the dollar cost R7.54.

The oil price was steady around $71 a barrel, consolidating the dollar driven rally as investors waited for an OPEC meeting to conclude, and fresh US crude inventory data. The drive of late has been driven by the dollar weakness and expectation that crude inventory stocks are depleting. By noon, a barrel of Brent Crude cost $69.24.

International Markets

Equities in the US climbed higher on an uptick in corporate deal activity whilst a weaker dollar led to gains in commodities. Oil and mining stocks benefited from the movement, whilst Kraft Foods Inc fell nearly 6% after Britain’s Cadbury rejected its takeover bid. The Dow closed 0.59% higher whilst the Nasdaq finished 0.94% up.

The Nikkei average fell overnight as Conon Inc and other major exporters were hit by an improved yen. Banking stocks also lost ground after a brokerage downgraded two of Japan’s biggest banks. The selling of financial stocks seems to be influencing the market negatively. This morning, the Nikkei finished 0.78% lower.

Shares in Hong Kong lost ground overnight, ending a 4-day rally, on concerns that some new issues would soon filter through to the market. Chinese consumer data is due out soon and the outcome of the government’s actions to ease the liquidity crisis will soon become apparent. Alibaba and Lenovo Group were sold lower after share placements. The Hang Seng closed 1.04% lower.

Stocks in London opened lower on Wednesday after 3 consecutive sessions of gains that took the FTSE 100 to a fresh high for the year. The stocks that helped the market forward were also under the most pressure because of profit-booking. In the mining sector, speculation about a potential bid for Lonmin from Xstrata faded which caused both stocks to suffer losses. At midday, the FTSE 100 was trading 0.19% up.

Share Price news

Alliance Mining Corporation Ltd of the AltX sector secured voluminous gains this morning as resources led the bourse on the JSE. At noon, its shares traded for R2.80 each (a 3.70% increase). Also performing well was Metorex Ltd of the Metals and Minerals sector. It gained 3.24% to sell for R3.82 per share at midday.

Among the morning’s losers, Compagnie fin Richemont Ltd of the Clothing and Footware sector lost significant ground. At noon, its shares traded for R20.73 each, reflecting a 3.58% decrease. Coronation Fund Managers Ltd of the Asset Managers sector also performed poorly. At noon, its shares cost R7.50 each, marking a 2.60% decrease.

Year to date performance

Many investors have a tendency to despise high volatility in their investment performance. However when it come to high positive volatility, then it’s only those investors that are short the market that are not satisfied. This has been the case in 2009 as prices have rebounded strongly from low points.

But for many South African investors, the very strong rand in 2009 has masked the dollar returns that global investors have extracted from the local market as well as other global and emerging markets.

The graph below indicates the performance of the local market versus the Morgan Stanley World index and reflects the recent outperformance of local markets against global markets.

Source : INet Bridge, Investec

In rand terms the JSE All Share index total return to the end of August has given investors 18,3%.

Rand appreciation has benefited global investors in the local market and they have achieved a dollar return of 43,2% to the end of August and an incredible 88% in US$ since early March when markets were at their lows.

Still for the year this has slightly lagged the MSCI Global emerging markets index return of 51,1% in USD for 2009.

Year to date the best performing sectors have included pharmaceuticals, media, household goods, life insurance, while the worst performing sectors have included food and drug retailers, chemicals and real estate.
The extent of this snapback in prices has reduced the value of local shares to the point where on various metrics its generally back to a long range fair value.

One valuation indicator is the dividend yield. The higher prices, combined with lower corporate earnings and payouts, have reduced the high dividend yield of 5% back to the current 3,2%.

source: Inet Bridge,Investec

The numbers give a clear indication that performance from an investment in listed shares is definitely not smooth.

Gold surges; global markets rally

Local Markets

The JSE was slightly higher this morning, taking direction from positive Asian markets and a much improved gold price. However, the strong local currency was limiting gains made by resource stocks. Without the strength of the rand, the Alsi would be experiencing significantly better results. By midday, the All Share was 1.08% up.

The rand reached its best level against the US dollar since May 2008 during the morning session. Speculation over the impending MTN-Bharti merger continues to inspire bullish attitudes as well as stronger gold prices. By noon, the rand traded at R7.52 to the dollar.

The gold price pushed past the $1000 mark as concerns over the health of the world economic system emerged once again. This is the 3rd time the precious metal has broken these limits but, as a safe-haven asset, the resource is likely to experience more gains. At noon, a troy ounce cost $1004.90.

International Markets

The US was on a bank holiday on Monday.

Japan's Nikkei managed to gain overnight as environment-friendly firms gained some momentum after Japan's Prime Minister elect Yukio Hatoyama said he would forge ahead with 25% cut in emissions by 2020. Showa Shell Sikuya made gains on plans to build a new solar cell plant, but overall, the gains were capped by a stronger yen which depressed exporters' opportunities. The Nikkei closed 0.70% higher this morning.

Hong Kong stocks finished higher this morning for the 4th consecutive day as gains were made on the mainland. Again, Chinese banks rallied on continued optimism that support form the Chinese government would be received. The benchmark Hang Seng closed 2.14% up this morning.

London equities continued with the run of good form recently, with banks and miners being the morning's biggest winners. However, there were signs that risk appetite was beginning to wane. Cadbury's shares remained in demand as traders speculated that Kraft's takeover bid would improve. Banking stocks were slightly subdued after the G20 summit called for tougher oversight and rules for capital requirements. Worries over the health of the world economic situation lingered though as a weakened dollar and inflation woes pushed investors towards safe haven assets such as gold. By midday, the FTSE 100 was 0.70% up.

Share Price News

Harmony Gold Mining Company Ltd of the Gold Mining sector experienced a good morning of incoming trade as the gold price continues to surge. By midday, its shares traded for R88.00 each, a 4.77% improvement. From the same sector, Gold Fields Ltd also attracted significant investment. At noon, a share cost R110.05 (a 3.67% gain).

Distribution and Warehousing Networking Ltd of the Building and Construction Materials sector lost voluminously this morning. By midday, a share cost R6.75, reflecting a 7.53% decline. Also performing poorly this morning was Liberty Holdings Ltd of the Life Assurance sector. At noon, a share traded for R63.50 (a 2.31% loss).

Lehman Brothers collapse anniversary coming up

The month of September is the anniversary of the collapse of Lehman Brothers. The bank was put into liquidation on the 15th September 2008, which then sparked a massive decline in asset prices around the globe. Now while the world is almost one year on from this calamity, it is still a long way from out of the woods.

Immediately and since that major default a year ago, there have been a number of bank defaults on the one hand and government / central bank initiates on the other, to try and prop up weak and failing financial situations.

After the Lehman Collapse, Bank of America took over Merrill Lynch, warren Buffett’s Berkshire injected 5 billion dollars into Goldman Sachs and in the UK HBOS had to be rescued with further government capital injections into RBS (Royal Bank of Scotland) and Lloyds.

By the end of 2008 most global economies were into recession, if not officially, then definitely unofficially.

Central banks have continued to do the one thing that they know best – keep interest rates as low as possible and boost the supply of liquidity.

Over the weekend finance leaders from the G20 countries met in London ahead of the actual summit of leaders which will meet on 24th and 25th September in Pittsburgh USA.

On the agenda are new requirements for a revision to banks capital adequacy requirements. i.e. just how much should banks hold as part of their capital – higher capital means lower risk, but lower profitability.

The graph of bank shares to FTSE350 reflects an increase in caution in recent weeks. This with talks of greater regulation, the anniversary of Lehman’s collapse, talk of exit strategy from providing liquidity and also the pullback in shares in China are all factors that are negatively influencing the market.

Source : Ecowin

The fact is however that central banks have pumped around $ 2 trillion in liquidity into the global economy with a further $250 billion available via the IMF. They will be very wary of withdrawing liquidity too quickly and so while asset prices will be volatile, there is some underpin from central bankers.

JSE higher on improved sentiment in global markets

Local Markets

The JSE opened higher this morning after taking direction from global markets, which have rallied. The Dow closed higher on Friday after better-than-expected payroll data for August and Asian markets followed suit overnight. Resources were leading the way with the platinum index forcing the Alsi higher. By midday, the All Share was 0.96% up.

The rand continued its recent run of good form to sit within a range of R7.58 to R7.68 to the dollar during the morning session. With little economic data due for release and a US public holiday looming, the currency seems range-bound after breaking the R7.70 mark on Friday. The rand has moved ahead of international markets but some currencies, like the Australian dollar, are catching up. By midday, the rand traded for R7.58 to the dollar.

The gold price took a slight knock this morning as equity markets rally once more, prompting a return of risk appetite. Traders retreated from the safe-haven asset and booked profits made last week. At midday, a troy ounce traded for $993.15.

International Markets

Stocks in the US closed higher on Friday as investors focused on the outcome of the non-farm payroll data that was released on Friday. Although the unemployment rate officially reached a 26-year high, the number of job cuts for August was smaller than expected. Gains were broad-based with technology shares leading the advance. The Dow Jones closed 1.03% higher whilst the Nasdaq finished 1.79% up.

Japan’s stock index rose overnight as exporters such as Canon Inc benefited from the relatively positive US jobs data and a weakened yen. Advantest Corp and other chip-related shares climbed higher after US peer Intel Corp’s CEO said on Friday that ageing personal computers and Microsoft’s launch of Windows 7 will prompt companies to purchase new PCs next year. By close this morning, the Nikkei had gained 1.31%.

Equities in Hong Kong gained overnight to reach a 3-week closing high on hopes that the Chinese government will continue to support its equity markets and after jobs data in the US suggested that the economy may be turning around and incomes rising once more. The benchmark Hang Seng finished 1.53% higher this morning.

Stocks in London climbed higher this morning on news of a major bid attempt on the FTSE 100. Kraft Foods revealed that it had proposed a cash and stock offer for Cadbury worth 745p per share. This valued the net asset value of Cadbury at £10.2 billion. Cadbury rejected the offer but investors speculated that the move could spur an improved bid and possible counter-proposals from competitors such as Nestle. Other food and consumer goods producers gained as traders bet that the bid could trigger further consolidation in the sector. The energised FTSE 100 was trading 1.49% up by midday.

Share Price News

Gold One International Ltd of the Gold Mining sector performed fairly well this morning, continuing with recent rallies made. By midday, its shares had climbed 5.00% to trade for R2.10 each. Also gaining this morning was Compagnie fin Richemont Ltd of the Clothing and Footware sector. By noon, it had improved by 3.93% to sell for R21.15 per share.

Among the losers this morning was Hospitality Prop Fund A of the Real Estate Holdings and Development sector, which lost 5.03% during the early session. At noon, a share cost R11.70 . Also performing poorly was Metorex Ltd of the Metals and Minerals sector. It lost 3.08% to sell for R3.77 per share by midday.

US unemployment data

The consensus for US new job losses in August was 230 000, but these came in better than expected at 216 000. The initial July estimate of job loses was raised from 247 000 to 276 000. The pace of decline is at least slowing after peaking at 741 000 in January, which was the most since 1949.

While the pace of job losses is slowing, the cumulative impact of these job losses means that the total official jobless rate jumps to 9,7% from 9,4%. This is a 26 year high and getting very close to the psychological 10% level.

These numbers bring the total number of job losses from December 2007 to 6,9 million which is the biggest decline in any post World War II economic slump.

This does not however tell the full story – because if adjusted for part time employees and discouraged worker – who are no longer considered to be unemployed – then the jobless rate jumps to 16,8%.

The graph below reflects the sharp rise in unemployment in the US as it heads for an official 10%

Source: Wells Fargo

There has also been a sharp increase in part time employed for economic reasons over the last 18 months.

Source: Wells Fargo

The period unemployed as measured by the average weeks unemployed has also pushed out to the highest levels since at least 1980 from 16 weeks at the start of the recession to a current 25 weeks.

Naturally high employment, especially in a high consumption economy is critical. But while the data are not conducive to growth, the direction is possibly more important and investors will be looking for turning points from this very weak level.

Gold continues its surge forwards as equity investors focus on US employment data due out today

Local Markets

The JSE opened fairly flat this morning with little direction being received from any corner. US employment figures are due out later today and as with global markets, this will drive the All Share index. With mixed Asian market performance and slightly improved US indices, the JSE remains flat. At noon, it was trading 0.34% up as gold miners and resources continued to gain o the back of a strong gold price and increased demand for precious metals.

The rand broke the R7.70 level late yesterday and managed to sustain this on opening this morning. The movement came on the back of a better-than-expected current account deficit. South African bonds are selling well through improved demand from offshore after the current account deficit announcements. By noon, the dollar traded for R7.69.

The gold price continued its recent rally, hovering juts above $1000 per ounce this morning. As investors remain concerned over the health of the global economy ahead of US employment data due out today, demand for safe-haven assets such as gold has increased dramatically. Gold is on track for its largest weekly gain since late April. Another factor also adding to the surge is gold’s hedging effectiveness against inflation, which has received more interest recently as central banks continue to pump money into economies as a means to jolt demand. At noon, the precious metal traded for $988.40 per troy ounce.

International Markets

Stocks in the US gained on Thursday, breaking a four-day losing streak. This improvement comes on the back of better-than-expected retail sales data. Investors had been cautious ahead of Friday’s non-farm payroll data but the retail sales renewed some optimism. After these modest gains, all eyes turn to the jobs data being released by the labour department. The Dow Jones closed 0.69% up whilst the Nasdaq finished 0.82% higher.

Japan’s benchmark index fell overnight to its lowest close in 5 weeks. Investors are reluctant to buy ahead of the US jobs data. Even the improved retails sales data yesterday couldn’t generate a drive forward. Daiwa Securities Group dropped significantly after announcing its intentions to acquire Sumitomo Mitsui Financial Group’s stake in their joint venture. The Nikkei finished cautiously this morning, 0.27% in the red.

Shares in Hong Kong performed well overnight to send the index through its largest gain in 6 weeks. The Chinese government increased the limit for stock investments by foreign funds to $1 billion in a show of support for the market. Clearly it worked as investors became bullish in their outlooks. The Hang Seng rose 1.1% on the week and managed to close 2.82% higher this morning.

London equities made a turnaround after 3 consecutive sessions of losing. Optimism prevailed ahead of the US jobless data which is likely to test the foundation of the summer rallies on world indices. Despite analysts’ comments on China and other emerging markets, the FTSE 100 is heavily weighted towards multinationals and dollar-earners so improved US consumer demand is the key to recovery. With employment forming an integral part of that movement, investors keenly await the jobless figures due out later today. By noon, the FTSE 100 was trading 1.05% higher.

Share Price News

Gold One International Ltd of the Gold Mining sector was among the morning’s most voluminous gainers. This comes on the back of a much stronger gold price as demand for the safe-haven asset continues to improve. It gained 8.50% to sell for R2.17 per share at midday. Also performing well was Pinnacle Technology Holdings Ltd of the Computer Hardware sector. It improved by 13.04% after releasing promising trading statements to trade for R2.60 per share at noon.

Among the losers was Pallinghurst Res (gu) Ltd of the Investment Companies sector. At midday, a share traded for R3.60 (a 2.70% loss). Of the Diversified Industrials sector, Eqstra Holdings Ltd also lost ground. At midday, it had shed 2.01% to sell for R7.80 per share.

Cash for Clunkers

Now as an owner of large stakes in car manufacturers, the US found a novel way of moving stock – providing a cash back incentive to owners of older vehicles to trade these in for new models. At face value the plan worked incredibly well with annualised sales of new vehicles moving up from around 10,5million to an annualised 14,5 million in August.

The plan, which ended on the 24th August, paid up to $4500 per trade in and was initially limited to funding of $1 billion, but then quickly expanded to a total of $3 billion.

New car sales were boosted from a low of around an annual 10,5 million to an annualized 14,1 million in August. However for the full year, Moody’s is forecasting an annual 11,5 million, which although up on 2008 is still far below the nearly 17 million in new vehicle sales in the US earlier in the decade.

But the incentive saw sales in August itself spike up 26% from sales in July – also because new purchases would have been held back in July.

Wells Fargo, along with others, estimates that the rebates will have the effect of borrowing sales from the future. New sales will definitely tumble in the coming months, but many of the trade-ins would have been on outright owned vehicles, now replaced with new vehicles and a payment book, resulting in lower discretionary spending in the months ahead.

Essentially the deal transfers capital from taxpayers to the car buyers, who possibly would have at some stage had to trade in their vehicles anyway.

The big questions then – “is there a net gain to the economy” or is this merely a short sharp shot in the arm to a particular sector under pressure, which just happens to also be where the government has a direct interest. The US government owns 61% of General Motors and 10% in Chrysler.

The chart below reflects the annualized sales stepping up dramatically.

Source: Wells Fargo and US Department of Commerce

History reflects that high government involvement in private enterprise does not work well and so only time will tell whether this artificial boosting and distorting of the private market by the government will prove beneficial.

Gold surges as demand shifts to safer assets; focus on key US employment data due out on Friday

Local Markets

The JSE opened relatively flat, with a marginal tip to the upside as gold prices surge. However, the profit-taking across world equity markets and major worries over the US economy could dampen optimism. Key US unemployment data is due for release on Friday so trade is likely to be thin, as investors remain cautious until then. Overall the All Share is actually performing quite well considering the losses made in the US and Asia. By midday, it was 0.48% up.

The rand added to gains made overnight, buoyed by a stronger gold price and stronger euro. The general expectation is also that SA’s current account deficit will be reported smaller than previously by the central bank. Another source giving direction is the US jobs data, with key information coming out on Friday. By midday, a dollar cost R7.77.

The gold price rallied in international markets as investors retreated from equities to less-risky assets (especially in the US). This prompted light profit-taking locally but activity was slower than expected as investors focus on the G20 meeting of finance ministers later this week. The stability of the global financial system is a key topic on the agenda, with potential outcomes influencing the gold price heavily. By noon ,a troy ounce traded for $983.15 (a 0.66% gain).

International Markets

US stocks fell for a 4th consecutive session as growing concerns over the economy spurred investors to sell. Major indices fluctuated between negative and positive territory throughout the day but before close, investors shifted funds away from equities to safer assets such as precious metals. The labour-market report reflecting job losses in the private sector certainly didn’t help matters as traders become nervous ahead of Friday’s monthly jobs data release. The Dow Jones closed 0.32% down whilst the Nasdaq finished 0.09% in the red.

The Nikkei average fell overnight as poor US unemployment figures from the private sector in August prompted more worries over the health of the US economy. Exporters were the biggest losers however the pharmaceutical company Dainippon Sumitomo Pharma climbed significantly on news that it would be bidding to acquire US drug maker Sepracor. Focus remains on the impending employment data in the US, which is due out tomorrow. Japan’s benchmark index closed 0.64% down.

Shares in Hong Kong gained overnight after strong performances on the mainland’s bourses. These improvements come on the back of an assurance from one of the top regulators that the liquidity concerns of late were exaggerated. This prompted a bout of technical buying after the markets’ recent slumps. The Hang Seng closed 1.23% higher this morning.

Equities in London rose during the morning session amid bargain hunting among mining stocks. Three consecutive sessions of losses left the sector looking attractive for profit margins. Pharmaceutical, tobacco and gold stocks also supported the movement although trade was generally quite defensive with important economic news due out today. UK inflation data is set for release later today and key US employment data tomorrow, so the market is likely to take direction from both. By midday, the FTSE 100 was fairly flat at 0.05% down.

Share Price News

Anglogold Ashanti Ltd of the Gold Mining sector was among the morning’s most voluminous gainers. This comes on the back of a session propped up by the improved gold price. It gained 6.44% to sell for R314.00 per share at midday. Also performing well was Drdgold Ltd of the same sector. It improved by 6.55% to trade for R6.02 per share at noon.

Among the losing banking stocks was Rmb Holdings Ltd of that sector. The banks and financial stocks were subdued in a session were resources and gold miners dominated. At midday, a share traded for R25.69 (a 3.42% loss). Of the AltX sector, Blue Financial Services Ltd also lost ground. At midday, it had shed 6.98% to sell for R2.00 per share.

Discovery Results

In a tough operating environment for financial companies Discovery has been able to release some excellent results. In a very short time Discovery has been able to grow an incredibly strong brand and is locally known mainly for their Discovery Health and Discovery Life operations. In addition to these two operations they have Discovery Vitality and Discovery Invest, and then PruHealth and PruProtect offshore.

Some of the highlights from Discovery’s annual report include:
• Operating profit up 32% to R1.7bn.
• New business growth of 20%.
• Diluted embedded value per share up 12% to R35.83.
• An increase of 31% in the dividend to 58.5c.

This is clearly a company that has been able to grow despite operating in a tough sector in tough economic times.

On the face of it Discovery has been able to build such a strong company over such a short period as they have come into the market with new, innovative products backed by systems and procedures that don’t have to take into account legacy business. They could essentially start the business from a clean slate, while other established companies have only been able to slowly adapt to changes.

The Vitality system that was implemented looks to not only provide rewards to Discovery’s clients, but also improve their health, thereby reducing the cost of medical bills, and also extending their life expectancies. This ultimately not only improves the client’s quality of life, but also Discovery’s bottom line.

Another great business decision has been their ability to integrate the various group companies. The more products that the client uses in the Discovery portfolio, the cheaper their products become. Essentially the businesses are cross subsidizing one another.

In terms of the earnings drivers, the two established South African businesses (Health and Life) drive the lion’s share of the business, contributing over R1bn and R1.1bn respectively in earnings. Vitality generates a further R40m, while their other businesses are still in their loss making stages. Discovery Invest, for instance, made a loss of R122m over the year. It is understandable for new ventures to be loss making to start off with as they grow their market share (as with any start up), but if Discovery is able to grow their business at the same rate that they have in the health and life business I’m pretty sure that they will soon be making a profit.

Discovery is a quality company and understandably trades at a premium to the market (PE of 14.93 compared to the market’s 13.35). Despite the excellent results, the share price was down just over 1% today in line with the broader market.

Equity markets down across the globe as profit-taking seeps in

Local Markets

The JSE opened weaker this morning as following losses on Wall St and overnight in Asian markets. Resources were again at the top of the losing list as miners remain under pressure, not at all aided by an improving rand. Investors globally are worried that the rally in equity markets over recent months was premature and there seems to be a mass sell-off at the moment. By midday, the All Share was 1.23% down.

The rand was slightly firmer against the dollar during the morning session. US equities were hampered severely yesterday and US employment data is due out today, so the rand is trading within a range until this release. Risky currencies have received little support in the last few days as the US dollar was boosted by the equities decline. One positive for the rand is the approval issued by government for the Bharti-MTN merger. At noon, the rand traded at R7.87 to the dollar.

The oil price improved slightly after the volatile movements of late. This improvement comes on the back of industry data that reflected a sharp fall in US crude oil stocks. This reignited hopes that energy demand for the world’s top consumer was on the uptake. More rigidly gathered data from US Energy information Administration (EIA) is due out later today and this could underpin the bullish market sentiment. At noon, a barrel of Brent Crude sold for $68.03.

International Markets

Stocks in the US fell for a 3rd consecutive day as investors remain cautious of more troubled balance sheets from the financial sector as well as a growing acceptance that the rallies of the last few months may have run ambitiously ahead of economic reality. Relatively good macroeconomic data that surfaced on Monday prompted the start of a sell-off as traders sought to book profits from recent rallies. September has historically been the worst month for stocks’ market performance and so far the data seems in line with this. The Dow Jones shed 1.96% whilst the Nasdaq closed 2.00% down.

The benchmark Nikkei of Japan also shed value overnight as exporters were damaged by a stronger yen. Financial stocks were also down after a sell-off sparked by concerns over the reality behind the alleged US economic recovery. Japan’s sole producer of PC memory, Elpida Memory, plunged 16% after signaling a need to refinance its balance sheet. The market awaits further cues from Wall St for direction. The Nikkei average closed 2.37% down this morning.

Shares in Hong Kong fell overnight as anxiety over the health of the financial sector pummeled global lender HSBC whilst Beijing’s latest fuel price hike saw airlines shed significant value. With banks from the mainland experiencing liquidity problems and further worries emerging from the US over many financial stocks’ true worth, the financial sector is once again in dire straits. The Hang Seng index closed 1.76% lower this morning.

Equities in London opened under severe pressure this morning as investors remain worried that the recent summer rallies in global stock markets were ill-founded and economic reality is beginning to rear its head. A sharp decline on Wall St set the backdrop for traders to resume selling and a pull-back in September seems inevitable now with most major indices haven given up recent profits. By noon, the FTSE 100 was trading 0.31% in the red.

Share Price News

Oceana Group Ltd of the Farming and Fishing sector was among the morning’s most voluminous gainers. This is a good achievement in a session marred by selling. It gained 2.04% to sell for R24.50 per share at midday. Also performing well was Invicta Holdings Ltd of the Engineering (– General ) sector. It improved by 3.35% to trade for R22.50 per share at noon.

Among many of the losing resources was Metorex Ltd of the Metals and Minerals sector. Strikes and a firmer rand continue to plague this sector, also affected by depressed equity markets in Asia. At midday, a share traded for R3.82 (a 4.02% loss). Of the Platinum sector, Lonmin Plc also lost ground. At midday, it had shed % to sell for R per share.

What is the new normal?

Pimco’s Bill Gross has penned an article titled “On the course to a New Normal”. As a global bond investment manager Pimco must try and understand the business environment in which they find themselves as well as try and assess the landscape going forward.

Their over riding themes are delivering, deglobalisation and re-regulation. Extending this theme a bit further, he expanded, saying that these themes lead to a number of broken business or economic models. He highlighted the following, which are well worth considering:

1. “American-style capitalism and the making of paper instead of things. Inherent in the “great moderation” of the past 25 years was the acceptance of a sort of reverse mercantilism. America would consume, then print paper assets and debt in order to pay for it. Developing (and many developed) countries would make things, and accept America’s securities in return. This game is over, and unless developing countries (China, Brazil) step up and generate a consumer ethic of their own, the world will grow at a slower pace.

2. “Private vs. public-driven growth. The invisible hand of free enterprise is being replaced by the visible fist of government, a temporarily necessary, but (if permanent) damnable condition itself in terms of future growth and profits. The once successful “shadow banking system” is being regulated and delevered. Perhaps a fabled “110-pound weakling” may be an exaggeration of where our financial system is headed, but rest assured it will not be looking like Charles Atlas anytime soon. Prepare to have sand kicked in your face, if you believe you are a “child of the bull market!

3. “Global economic leadership. It’s premature to award the 21st century to the Chinese as opposed to the United States, but if the last six months have been any example, China is sort of lookin’ like Muhammad Ali standing over Sonny Liston in 1964 yelling, “Get up, you big ugly bear!” Not only has China spent three times the amount of money (relative to GDP) to revive its economy, but it has managed to grow at a “near normal” 8% pace vs. our “big R” recessionary numbers. Its equity market, while volatile and lightly regulated, has almost doubled in twelve months, making ours look like that ugly bear instead of a raging bull.

4. United States housing and employment. Old normal housing models in the U.S. encouraged home ownership, eventually peaking at 69% of households .…. Subsidized and tax-deductible mortgage interest rates as well as a “see no evil – speak no evil” regulatory response to government Agencies FNMA and FHLMC promoted a long-term housing boom and now a significant housing bust. Housing cannot lead us out of this big R recession no matter what the recent Case-Shiller home price numbers may suggest. The model has been broken if only because homeownership is declining, not rising, sinking to perhaps a New Normal level of 65% as opposed to 69% of American households.”

He continued saying that this “new normal” as he terms it “cannot easily be modelled econometrically, quantitatively, or statistically.”

They therefore assume the following strategic conclusions.

1. Global policy rates will remain low for extended periods of time.
2. The extent and duration of quantitative easing, term financing and fiscal stimulation efforts are keys to future investment returns across a multitude of asset categories, both domestically and globally.
3. Investors should continue to anticipate and, if necessary, shake hands with government policies, utilizing leverage and/or guarantees to their benefit.
4. Asia and Asian-connected economies (Australia, Brazil) will dominate future global growth.
5. The dollar is vulnerable on a long-term basis.

Equity markets subdued as the historically quiet trade month of September begins

Local Markets

The JSE opened firmer this morning after yesterday’s big sell-off. A slight turnaround in Asian markets overnight helped to entice buying during the early parts of the session however resources were lower on a depressed US economic outlook and lower oil price. By noon, the All Share was trading 0.49% in the red.

The rand was slightly firmer in early trade this morning although September is historically the worst month for US equities and so generally quite negative for the rand. Also worrying was the failure of the rand to improve on positive trade data yesterday. By midday, the rand had lost 0.38% to sell for R7.79 to the dollar.

The gold price is rebounding after hitting a low of $944 yesterday. The drop came as a result of a large sell-off as investors worried over tumbling Chinese equities and a fall in the oil price. Today, however, Chinese markets and the rest of Asia seemed settled and the gold price began to recover. The gold price was $949.50 per Troy Ounce by midday.

International Markets

Equities in the US fell on Monday as concerns over the global economy’s health continue to plague Wall St Investors. The latest incident to incite the fears was a large scale sell-off in Chinese stocks. Energy shares led the decline after a sharp drop in the Chinese stock index whilst the oil price also slipped on heightened worries over global energy demand. Investors also remain worried about a market retreat as we head into a traditionally soft period of the year for trading. By close, the Dow Jones had lost 0.50% whilst the Nasdaq closed 0.97% down.

The Nikkei average gained overnight as Shanghai stocks managed to recover slightly although advances were restricted by the strengthening yen against the dollar and concerns over upcoming US economic data. There is also uncertainty about the newly elected Democratic Party’s ability to govern efficiently and implement sound economic policy. The Nikkei closed 0.36% in the green this morning.

The Hang Seng was steady within a range during the session overnight. Improved manufacturing data put the focus on the mainland’s economic recovery. Shares such as HSBC and China Mobile shot up but the gains were largely subdued by losses from top insurers as the market’s recent volatility places doubt on investment income forecasts from such firms. The Hang Seng closed 0.75% up this morning.

Stocks in London were affected by the losses made in other markets globally. Wall St sentiment has taken a negative turn as the soft period of the trading year begins and this deviation from recent trends has seen UK investors follow suit. Stocks from the recent summer rally were under severe pressure as traders booked profits and funds began to flow to more defensive sectors. By midday the FTSE 100 had shed 1.32% in value.

Share Price News

Illovo Sugar Ltd Npl of the Food Processors managed to perform well during the morning session as resources and financials generally lost ground. Its shares traded for R4.32 each by noon, reflecting a 4.10% gain. Blue Label Telecoms from the Wireless Telecom Services sector also attracted some of the largest volumes of trade this morning. At midday, a share cost R5.55 (a 2.78% improvement).

Wesizwe Platinum Ltd of the Platinum sector was among the morning’s losers as resources led the JSE into the red. It lost 5.58% to sell for R2.03 by midday. Also performing poorly was Anglogold Ashanti Ltd of the Gold Mining sector. It announced the details of its equity share offering and the market responded unfavourably. At noon, a share cost R285.25 (a 4.29% loss).

Equity markets subdued as the historically quiet trade month of September begins

Local Markets

The JSE opened firmer this morning after yesterday’s big sell-off. A slight turnaround in Asian markets overnight helped to entice buying during the early parts of the session however resources were lower on a depressed US economic outlook and lower oil price. By noon, the All Share was trading 0.49% in the red.

The rand was slightly firmer in early trade this morning although September is historically the worst month for US equities and so generally quite negative for the rand. Also worrying was the failure of the rand to improve on positive trade data yesterday. By midday, the rand had lost 0.38% to sell for R7.79 to the dollar.

The gold price is rebounding after hitting a low of $944 yesterday. The drop came as a result of a large sell-off as investors worried over tumbling Chinese equities and a fall in the oil price. Today, however, Chinese markets and the rest of Asia seemed settled and the gold price began to recover. The gold price was $949.50 per Troy Ounce by midday.

International Markets

Equities in the US fell on Monday as concerns over the global economy’s health continue to plague Wall St Investors. The latest incident to incite the fears was a large scale sell-off in Chinese stocks. Energy shares led the decline after a sharp drop in the Chinese stock index whilst the oil price also slipped on heightened worries over global energy demand. Investors also remain worried about a market retreat as we head into a traditionally soft period of the year for trading. By close, the Dow Jones had lost 0.50% whilst the Nasdaq closed 0.97% down.

The Nikkei average gained overnight as Shanghai stocks managed to recover slightly although advances were restricted by the strengthening yen against the dollar and concerns over upcoming US economic data. There is also uncertainty about the newly elected Democratic Party’s ability to govern efficiently and implement sound economic policy. The Nikkei closed 0.36% in the green this morning.

The Hang Seng was steady within a range during the session overnight. Improved manufacturing data put the focus on the mainland’s economic recovery. Shares such as HSBC and China Mobile shot up but the gains were largely subdued by losses from top insurers as the market’s recent volatility places doubt on investment income forecasts from such firms. The Hang Seng closed 0.75% up this morning.

Stocks in London were affected by the losses made in other markets globally. Wall St sentiment has taken a negative turn as the soft period of the trading year begins and this deviation from recent trends has seen UK investors follow suit. Stocks from the recent summer rally were under severe pressure as traders booked profits and funds began to flow to more defensive sectors. By midday the FTSE 100 had shed 1.32% in value.

Share Price News

Illovo Sugar Ltd Npl of the Food Processors managed to perform well during the morning session as resources and financials generally lost ground. Its shares traded for R4.32 each by noon, reflecting a 4.10% gain. Blue Label Telecoms from the Wireless Telecom Services sector also attracted some of the largest volumes of trade this morning. At midday, a share cost R5.55 (a 2.78% improvement).

Wesizwe Platinum Ltd of the Platinum sector was among the morning’s losers as resources led the JSE into the red. It lost 5.58% to sell for R2.03 by midday. Also performing poorly was Anglogold Ashanti Ltd of the Gold Mining sector. It announced the details of its equity share offering and the market responded unfavourably. At noon, a share cost R285.25 (a 4.29% loss).